The recently announced budget proposals for fiscal year 2011-12 under lead of Indian Finance Minister Pranab Mukherjee cause a stir. Especially in the sectors of BPO and ITO, small and middle seized companies fear upcoming increase of alternate tax.

Offshore outsourcing experts interpret the Finance Ministry’s  tax reform agenda as limiting crucial tax incentives  to boost the industry.

After India’s service sector, with ITO and BPO as main drivers, was hailed as successful source of the country’s economic prosperity, experts now forecast a vast profit slow-down in line with the planned tax reformation.

The new tax scheme implies an imposition of MAT at 18.5% on SEZ and an ending to the tax benefits under the Software Technology Parks of India (STPI) . As a consequence middle and small seized service provision companies that are seeking to expand in the SEZ scheme will be significantly limited because effective tax rates under the planned scheme would amount to 20%.

Additionally, Mukherjee is highly criticized for not integrating tax exemptions into the new scheme in case an organization is export-oriented. Nevertheless the current exemption regulations are planned to be applicable for at least one more year after the introduction of the reformed tax scheme.

ITO and BPO players articulate their vast disappointment about the new scheme that does not integrate extra incentives for two of the fastest growing economic sectors in India. Complaints are grounded on the circumstance that both, BPO and ITO in India are booming markets that create many opportunities for urban employment in high-end jobs